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Uncovering China’s cashless society
To the market we go: People flock to Chenghuangmiao Market in Shanghai, China
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To the market we go: People flock to Chenghuangmiao Market in Shanghai, China. (JP/Ika Krismantari)
Decades after Deng Xiaoping’s economic reform, China’s economy continues to evolve. Now, the country is poised to become the world’s first cashless society. The Jakarta Post’s Ika Krismantari and
Benni Yusriza recently visited China on the sponsorship of the Chinese Embassy in Jakarta to see how technological advances and the internet have transformed Chinese people’s lives in every aspect.
The prevalence of China’s mobile payments is hard to overlook. Not only is everyone talking about the e-payment platforms, but also people are using them in their daily lives to the point where it seems they can’t live without them.
Tourist guides, shop attendants, street vendors, waiters, snack sellers and buskers all ask if you want to pay or donate using WeChat or Alipay — the most popular smartphone payment option. Cash may be used as the last resort.
“I pay for my groceries with this as well as my taxi fares,” 35-year-old Li Nan from Beijing said, while showing off the WeChat Pay app on his phone to The Jakarta Post.
The tourist guide quipped he could not live without the app, which makes his day-to-day transactions much easier.
Cash has become somewhat a relic of the past in China as the cashless trend is taking hold in the country, with mobile payment becoming a basic necessity.
As of the end of 2016, more than half of China’s population, or about 731 million people,
was connected to the internet, and 95 percent of them, or around 695 million, were on mobile internet.
According to a report from scholarly journal Big Data Research, China’s mobile transactions totaled 38.6 trillion yuan (US$5.8 trillion) in 2016, or an increase of more than 200 percent from the previous year. Bloomberg columnist Adam Minter even called that year “China’s cashless revolution.”
Another study conducted by the Tencent Research Institute, owned by Tencent — WeChat’s developer — also shows a similar trend of China going toward a cashless society.
Based on WeChat Pay data and an online survey involving 6,595 respondents, the report showed that Chinese consumers spent $5.5 trillion through mobile payment platforms last year, about 50 times more than their American counterparts.
Half of the respondents also stated that they conducted less than 20 percent of their monthly transactions with cash. The respondents said they only paid in cash when no other payment methods were available (73 percent) or for small transactions (46 percent).
Both old and young generations in China have agreed that cash is so last year. According to the Tencent study, young people, especially women, lead the cashless trend in China.
The post-80s generation said they spent less than one-fifth of their money each month using cash. But, even the older generation is joining the trend, with 45 percent of respondents born in the 1960s saying they used cash less than 20 percent of the time.
The report also indicates that mobile payments had conquered service industries from travel, entertainment, retail to dining.
In China, every segment of the dining industry has adopted mobile payment. Fast-food chains and high-end restaurants to fruit vendors and food stands all receive mobile payments.
For example, during our stop at a food stand in Beijing, the shopkeeper refused cash from buyers because she did not have enough cash for change; she kept pointing at a QR code sticker displayed on her stall.
Two tech giants — Tencent and Alibaba, the operator of Alipay — have cashed in on this unstoppable cashless trend in China. Tencent’s earnings almost tripled from a year earlier to 6.4 billion yuan due to the rise in mobile payments.
Meanwhile, Alibaba’s 2016 revenue jumped 56 percent to 158.27 billion yuan, driven by online transactions.
Given their successes in China, the two companies are eyeing up expansion abroad. Alipay has entered more than 200 countries and regions under 18 different currencies.
It has more than 40 million registered overseas merchants. Meanwhile, WeChat covers more than 130,000 overseas customers in 13 countries and regions, supporting settlements in 10 currencies.
Key factors
China’s cashless revolution has surprised many. Two years ago, British newspaper The Independent billed Denmark to become the world’s first cashless nation.
But, it turns out that the adoption of the mobile payment method has nothing to do with economic development, as the still-developing China is leading the game two years later.
Bank of China reported that mobile payments reached 157 trillion yuan last year, or more than 200 times the amount made in the United States.
At this rate, it looks only fair to assume that China, the first country to create banknotes, is set to become the first one to abandon them.
Learning from China’s story, experts have agreed that the
ease of adopting the technology is one of the important keys that can sway people toward mobile payments.
The adoption of QR code technology (quick response codes similar to bar codes) is crucial in the development of China’s Internet finance industry.
Payment systems based on QR codes do not require sellers to spend more on credit card machines or bank fees. QR codes are more accessible than other more sophisticated technology, like near-field communication (NFC) technology that not all mobile phones have.
China’s mobile payment industry is rapidly growing also due to its low barriers for consumers. Mobile payment platforms in China are open to all smartphone users who have bank accounts. They don’t need to have credit cards, making it easier for people to use the technology.
Lessons for Indonesia
China’s success story has enticed many countries to follow suit. A cashless society is a dream that many countries cherish to move toward a more efficient economy, mainly because they would have to print fewer banknotes if their citizens relied on mobile payments.
Economist from the Centre for Strategic and International Studies (CSIS) Grace Dewi said that the most obvious benefit of developing a cashless system was better financial security.
“With cash, banknotes or coins, people can evade tax because it does not have names. Cash can easily be misused for illegal transactions, such as corruption or drug business. So, moving to a cashless society will reduce the risk,” said Grace.
However, to make the most of the cashless society, she added, it would highly depend on how a country integrates the system into society.
“Society is not a monolithic entity. There is the government, law enforcement and the people who are all important to the creation of the cashless system,” Grace said. She attributes China’s success to the fact that the system was built in a rather monolithic society.
Following China is probably India. In February, the Indian government introduced the India QR to promote cashless transactions around the country.
Some African countries are also on track to becoming cashless societies. Last year, Mastercard Inc. rolled out a QR code system in Africa that attracted 100,000 Nigerian traders.
In Indonesia, the potential for mobile transactions is promising. The latest figures showed that mobile transactions stood at Rp 7.05 trillion ($523 million) last year, up from Rp 5.28 trillion from the previous year.
In July this year, monthly transactions hit an all-time high of Rp 1.14 trillion. Currently, mobile transactions account for 22.68 percent of total domestic non-cash transactions.
This is an exponential increase compared to the 2.3 percent recorded in 2009, according to Bank Indonesia.
With Indonesia’s mobile device penetration having surpassed its population of more than 250 million, of which 102 million people use smartphones, the country has a bright prospect to become a cashless nation.
As an old saying goes, “Seek knowledge and wisdom even if you have to go as far as China,” it is time for Indonesia to learn from the land of Confucius on this aspect of the material world.
